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REVIEW YOUR FIXED INCOME PORTFOLIO POST DEMONETISATION

Public and Private sector banks have started reducing their rates on fixed deposits due to the windfall inflows coming into the banking system since the currency demonetization was announced on Nov 08, 2016. Bank deposit rates for the top public and private sector banks, on an average, currently stands at 6.8% p.a. for 3 years and is expected to go down further. These rates are for deposits of up to Rs 1 crore and may differ for senior citizens.

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With lower interest rates, you need to answer the following questions before you invest your hard earned money:

As seen from the above table, debt funds, both Duration and Accrual, have been able to generate better real return than traditional instruments like Bank FDs. Also, post-tax returns of liquid funds are higher than pre-tax returns from a saving bank. More specifically, liquid fund have given a real return of 0.6 to 0.7% as against savings accounts negative real return of -1.4%.

Note :Deduction u/s 80TTA is available to on interest on saving account

Debt funds, both Duration and Accrual, continue to generate better real returns than traditional instruments like Bank FDs. Their post-tax return continues to be the same, due to the long term indexation benefit for a holding period of 3 years. Also, there is no change in the return on tax-free bonds.

Debt funds continues to generate better real returns than traditional instruments like Bank FDs. Their post-tax return continues to be the same due to the long term indexation benefit for a holding period of 3 years. Also, there is no change in the return on tax-free bonds.

The below table summarizes the instruments one should look at after considering individual tax slab:

Conclusion: Before investing in any fixed income products, it is imperative to undertake a proper analysis, specifically when the interest rates are headed downwards. One of the biggest benefits that debt mutual funds offer is capital appreciation when INTEREST RATES GO DOWN. We are currently in that zone and hence, this should be taken into consideration. Apart from the above, do also consider the following:

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1. Need for regular income or cash flows.

2. Liquidity or lock-in period before which investments cannot be withdrawn.

3. Credit rating of the Bond/Deposit before investing.

It is your hard earned money, do not part with it without proper due diligence. Remember every penny saved is a penny earned.

Performing Mutual Fund
Plans

Debt and Hybrid Funds

Corpus

NAV (Rs.)

CAGR (%)*

(Rs. Crs)#

Gr

Div

1 yr

3 yr

5 yr

Income Funds

Birla SL Dynamic Bond Fund

13,887

30.26

13.14

18.39

13.66

11.75

HDFC Income Fund

2,610

38.95

12.28

18.59

13.18

10.74

IDFC Dynamic Bond Fund

4,945

20.24

11.58

16.25

12.4

11.03

Gilt Funds

Birla SL G-Sec-LT

742

50.43

12.5

18

13.6

11.33

HDFC Gilt-Long Term Plan

3,370

35.26

12.05

20.51

15.09

11.77

Reliance Gilt Securities Fund

1,111

22.32

10.73*

19.99

14.78

12.44

Hybrid - Monthly Income
Plans(MIPs)

Birla SL MIP II-Savings 5

275

31.8

13.7*

16.04

13.59

11.58

Franklin India MIP

448

50

14.52*

12.55

13.61

11.96

HDFC MIP-LTP

3,732

41.03

14.76*

15.41

15.08

12.29

Crisil Composite Bond Fund Index

2,834.61

14.73

12.49

10.18

Crisil MIP Blended Index

3,441.10

12.98

12.21

10.47

Ultra Short Term Plan

ICICI Pru Flexible Income Plan

21,024

305.15

121.93

10.67

10.3

9.62

Kotak Treasury Advantage Fund

5,048

25.51

10.15*

8.26

8.59

8.35

Tata Floater

4,309

2413.4

1531.22*

8.84

8.99

8.72

Liquid Funds

Birla SL Cash Plus

27,636

254.99

106.68

6.83

7.16

7.8

ICICI Pru Liquid Plan

28,820

235.04

118.73

6.91

7.2

7.77

Kotak Floater-ST

10,343

2606.5

1004.15*

6.91

7.21

7.79

Crisil Liquid Fund Index

2,629.90

6.85

7.19

7.62

*Returns are
compounded annualized as Nov 30, 2016. *NAV for these schemes
is of Monthly Dividend option and rest are for annual dividend option